Result of research carried out between 1994 and 2006 on the evolution of the importance and quality of the physical distribution service in the consumer goods industry, in the perception of supermarket operators
The first part of this article presents an analysis of the economic scenario, which determines the behavior of agents in the consumer goods supply chain. Next, the implications of changes in the competitive environment will be discussed in terms of the needs of supermarkets, as well as the performance and quality of the distribution service practiced by the industry.
The analyzes that follow are based on the results of the Benchmark Survey – Physical Distribution Service, conducted periodically since 1994 by the Center for Studies in Logistics – Coppead/UFRJ.
THE ECONOMIC ENVIRONMENT
Even though 2006 was another year with disappointing economic performance, the 2005/2006 biennium showed a discreet GDP growth of 6,7%. Even more interesting is to verify that, in this period, there was a consistent reaction of the worker's purchasing power, of 6,8%, after a long series of annual losses that accumulated –24,3% between 1998 and 2004 (see Table 1).
However, Table 1 demonstrates that the highest disposable income was not channeled into the purchase of consumer goods. It seems that consumers have withdrawn their shopping habits in view of the uncertainties of the period, characterized by institutional scandals and the past election.
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Thus, as observed in the last edition of this survey, inflation continues to fall in a wage recovery period. This reinforces the conclusion that inflation is not being pressured by demand. Therefore, the notion remains that there is room for growth in consumption, if there is a continued improvement in the economic and institutional framework. It is expected that the positive advance in the conditions of the economic environment can stimulate the emergence of a virtuous cycle of cause and effect in the supply chain, in which the increase in income reverts in consumption growth, implying in greater sales of the supermarket trade, the which in turn causes a higher level of activity in the consumer goods industries.
THE BUSINESS PURCHASE DECISION PROCESS
This section will address the impacts of changes in the economic environment on trade relations between participants in the consumer goods supply chain, as illustrated in Figure 1.
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Figure 1 presents the logic of the physical flow of goods between the industry and the consumer, which can be done directly, through a wholesaler or through a retail network. This last case is the focus of the research carried out.
Figure 2 shows how the relative importance of the retailers' purchasing decision variables2 with the industry was changing over the period considered by the research.
It is interesting to mention that, when comparing the forecasts obtained in the 2005 edition of the survey with the current ones, there was a significant change in trade expectations with regard to their purchasing decision process with the consumer goods industry. The 2006 surveys indicate that trade will be reducing the emphasis given to the physical distribution service variable for the coming years, when compared to what was predicted in the previous edition of the survey.
At the time, the importance of the service would increase from 23% in 2005 to 24,4% in 2007. It turns out that, in this year's survey, the relative weight of the distribution service provided by the industry in the retailer's purchase decision dropped sharply to 16,8, 17,1%, signaling an increase to 2008% in 6,2. This change implied a reduction of 2005 percentage points between 2006 and XNUMX!
It can be observed, from Figure 2, that the distribution service basically gave way to the promotion and advertising initiatives developed by the industry. This may mean that the trade is trying to encourage the consumer's shopping habit with more seductive attractions in the media and in the sales areas around the shelves. After all, as previously observed in Table 1, the results of the retail trade in 2006 accumulated losses of 1,7% in its real sales, while the worker had his purchasing power reinforced by 4,3%.
This indicates a strong change in commercial relations between supermarkets and consumer goods industries. Figure 2 demonstrates that there was an inversion of the trend of increasing importance of the distribution service practiced by the industry in the process of purchasing decisions in the trade verified over the period of the research. Until 2005, there was a growing appreciation of the service, when its highest level of relative importance was pointed out: 23,6%. Currently, there is a significant decrease in the importance of the service to the levels of 1998/1999, that is, 16,8%.
On the other hand, the promotion and advertising variable followed the opposite path to the distribution service. In 2006, the level of importance of this variable reached its highest level in the entire historical series of the survey, that is, 20,0%.
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It is important to pay attention to changes in the relationship between commerce and industry, as there is a clear dilemma between these two variables in the purchase decision of commerce. As a rule, the increase in promotion and advertising initiatives implies an increase in the cost of the physical distribution service. It is worth assessing whether the cost increases arising from initiatives to encourage purchases by consumers will be offset by growth in retail sales.
THE SATISFACTION LEVEL OF THE TRADE WITH THE INDUSTRY'S DISTRIBUTION SERVICE
This analysis concerns the level of satisfaction of the retail trade with the performance of the industries that have the best practices, as well as those with typical performance3, considering the three main dimensions of the physical distribution service, namely: product availability4, consistency of delivery time delivery5 and order cycle time6.
Figures 3 and 4 indicate that, in 2006, the supermarket trade has been more satisfied with the physical distribution service of its suppliers.
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In the evaluation made by the trade, the distribution service of the industries that hold the best practices has shown a clear trend of improvement, after several years of growing dissatisfaction with its performance. Between 2003 and 2006, as a rule, there was a reduction of more than 75% of retailers dissatisfied with the distribution service of the best industries (see Figure 3).
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Contrary to best practices, as seen in Figure 4, the typical industry had been showing an increase in dissatisfaction with the physical distribution service, notably from 2001 to 2005. However, this trend was reversed in 2006, the year in which the percentage of dissatisfied dropped sharply in the three main customer service variables: from 83% of retailers dissatisfied with the consistency of delivery times in 2005, to 44% in 2006; from 71% of retailers dissatisfied with order cycle time in 2005 to 17% in 2006; and from 50% of retailers dissatisfied with product availability in 2005 to 15% in 2006.
RETAIL'S DEMAND LEVEL7 AND INDUSTRY'S PERFORMANCE
The performance analysis of the industry's physical distribution service makes more sense if considered in conjunction with the retailer's level of demand for it. After all, a central issue to be understood in order to design a winning service strategy would be: How to achieve the level of customer satisfaction? In this sense, this section will address the evolution of these components that determine the level of satisfaction of retailers, considering each of the three main dimensions of the physical distribution service in the consumer goods industry.
Product Availability
It can be observed that the level of minimum expectation of the trade referring to the delivered percentage of the total order dropped sharply in 2006, after having reached in 2005 its highest level in the entire historical series, as illustrated in Figure 5. Currently, the trade is not satisfied with deliveries that do not comprise at least 85,9%, when in 2005 this value reached the level of 99,0% of what was originally ordered.
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On the other hand, both the best practices and the typical industry also showed declines in the performance of the service provided to commerce in 2006. In the case of best practices, the percentage delivered, which was 99,0% in 2005, dropped to 97,3% of the total requested in 2006. In the same way, the typical industry reduced the percentage delivered, from 94% in 2005, to 92,6% of the total requested in 2006.
However, it is observed that the strong reduction in the level of expectation, in terms of product availability, is the main reason for the sharp drop in retailers dissatisfied with the industry as a whole (see Figures 3 and 4).
Delivery Time Consistency
Figure 6 also indicates a significant reduction in demand for consistency of delivery time in 2006, after having reached its highest level in the previous year. Currently, the retailer does not tolerate receiving more than 14,7% of late deliveries, when in 2005 this figure reached the level of 3,1% of orders placed.
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Regarding performance, both the best practices and the typical industry had a significant increase in delays in 2006. In the case of best practices, delays, which reached 4,5% in 2005, reached 6,6% of deliveries in 2006 – the highest historical level. The typical industry, on the other hand, increased delays, from 13,8% in 2005 to 20,7% of deliveries requested by commerce in 2006 – a level equivalent to that of 1997.
However, the even sharper reduction in expectations, in terms of delivery time consistency, explains the generalized drop in the percentage of retailers dissatisfied with the level of delays performed by the industry (see Figures 3 and 4).
Order Cycle Time
As with the other dimensions previously analyzed, retailers significantly increased their tolerance in terms of delivery times in 2006. Supermarkets' expectations reached their highest level in 2006, 4,3 days, after having reached the lowest historical level in the previous year: 1,9 days (see Figure 7).
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As for performance, best practices increased order cycle time in 2006, while the typical industry showed performance improvement over the same period. In the case of best practices, these increased the deadline from 1,8 days in 2005 to 2,1 days in 2006 – after three consecutive years of reduction. In contrast, the typical industry showed a reduction in delivery time, from 3,7 days in 2005 to 3,5 days in 2006 – after a period of three years of significant increases.
As observed in the previously analyzed variables, the sharp drop in expectations in terms of order cycle time was the preponderant cause for the reduction in the level of dissatisfaction with the delivery time achieved by the industry in general.
The research results analyzed in this section point to evidence that commerce perceives a clear difference in performance between the distribution service provided by best practices and that provided by the typical industry, considering the three main variables of its purchasing decision process.
CONCLUSION
The economic environment has had a strong influence on commercial relations between supermarkets and consumer goods industries. It is up to the industries to capture and interpret the ongoing changes to take advantage of the arising opportunities, being more agile than the competition in adapting their competitive strategies.
What can be seen in 2006 is a strong change in the requirements that direct commercial relations between retail trade and the consumer goods industry, notably in the variables physical distribution service and promotion and advertising.
In short, the supermarket trade indicates that it is proposing, at least for now, that the industry invest in promotion and advertising initiatives with the objective of promoting the final consumer's propensity to purchase, which can have a negative impact on the efficiency of the logistical process in order to cost reduction. This finding is consistent with the current scenario of disappointing sales by retailers at a time when workers' purchasing power has been vigorously strengthened in the last two years (see Table 1).
The generalized reduction in the level of dissatisfaction with the industry's performance is consistent with the decrease observed in the relative importance of the physical distribution service in the retail purchase decision process.
The strong drop in supermarket trade expectations is also in line with the reduction of retailers dissatisfied with the physical distribution service provided by the consumer goods industry.
The survey results also confirm the existence of a strong potential for competitive differentiation between the consumer goods industries in terms of the quality of the physical distribution service provided to the supermarket trade. The service performance offered by best practice companies is clearly perceived by retailers as superior to that provided by the typical industry.
As a final message, it is important to highlight the argument that the development of periodic research is essential to keep the business relevant and aligned with the real needs of the market. It is from the continuous monitoring of the competitive environment that opportunities can be identified to better serve the customer, anticipating and surpassing the competition.
General information
The Benchmark – Physical Distribution Service survey, conducted periodically since 1994 by the Center for Studies in Logistics, has been sponsored by leading industrial companies in their respective sectors.
The scope of the research considers about 600 interviews, carried out in five Brazilian capitals (São Paulo, Rio de Janeiro, Curitiba, Belo Horizonte and Recife), considering four categories of products: perishable food, non-perishable food, paper and hygiene and cleaning .
The methodology evaluates eight dimensions (operationalized through their respective distribution service attributes): Product Availability, Order Cycle Time, Delivery Time Consistency, Delivery Frequency, Delivery System Flexibility, Failure Remediation System, Support Information System and Physical Delivery Support.
Sponsoring companies: Belfam; Steel wool; Ceval; Coke; Unilever – HPC; Unilever – Bestfoods; J. Macedo; Johnson&Johnson; Kraft; Kibon; Kimberly-Clark; Improvements; Nestlé; Perdigão; Reckitt Benckiser; Healthy; Santher; Santista Foods; Sara Lee; Unity.
BIBLIOGRAPHY
FLEURY, PF, LAVALLE, CR Evaluation of the physical distribution service: the relationship between the consumer goods industry and the wholesale and retail trade. Management and Production, vol. 4, nº 2, August 1997.
CHRISTOPHER, M. Logistics and Supply Chain Management: strategies for reducing costs and improving service. Prentice Hall, 1998.
BOWERSOX, DJ, CLOSS, DJ Business Logistics: the supply chain integration process. Atlas publishing house, 2001.
NOTES
1 Source: Economic Conjuncture, IBGE and Abras.
2 Respondents were asked to distribute HUNDRED points among the four purchasing decision variables considered (product, price, physical distribution service, promotion and advertising). A higher score indicates greater relevance. The result indicates the relative weight of these variables in the decision-making process for trade purchases with the industry. In order to maintain data compatibility, the analysis that follows only considers São Paulo and Rio de Janeiro, as these are the only markets that were objects of research during the 12 stages of the same, between 1994 and 2006. Recife markets , Curitiba and Belo Horizonte were added in the second, third and fourth phase of the survey, respectively.
3 The best market practices reflect the best performance among suppliers, therefore to be pursued as a benchmark. The performance of a typical company represents the market practice among the main suppliers of the researched company.
4 Measure: average of the percentage delivered of the total ordered.
5 Measure: Average percentage of total orders that are delivered late.
6 Measure: average time elapsed from taking the order to delivering the product.
7 The level of demand in question refers to the minimum expectation of service performance below which the customer feels dissatisfied.
